Here we are again: Fraud. Lives disrupted. An FBI investigation.
This time, a New York State-based payroll company is accused of diverting $35 million from employee accounts. As the details come together, it’s worth asking how you can protect yourself.
Why might a business trust a payroll company in the first place?
Trusting a company to handle huge chunks of change (along with your reputation) is no small thing. So why would employers process payroll through a third party?
While paying people may seem like a simple task, it can actually be very complicated, time-consuming, and laden with risk. In many cases, employers hand off payroll to third-party companies to avoid having to navigate the minefield of laws governing taxes, family leave, and other regulations that come with running a business and paying employees. Outsourcing payroll is a way for companies to mitigate risks and offload a time-consuming, labor-intensive task to a company that specializes in that area. It’s like having a whole HR team without having to hire an internal HR team.
How could $35 million just disappear?
When businesses outsource payroll, they send a sum to cover all expenses (including payroll and taxes) to the payroll company who then distributes the paychecks.
A simple typo could lead to an employee receiving extra pay. In that case, a payroll company has the authority to retroactively cancel the check or even withdraw the overage from the account directly. It seems in this case, the company not only withdrew funds specified for legitimate paychecks, but went even further by withdrawing higher amounts than the original paychecks. The result: $35 million in missing funds.
If the investigation confirms the surface facts of this case, this is one egregious scandal. The offending company has since shuttered its doors and scrubbed social media accounts, leaving individuals scrambling for answers and companies figuring out how to pay their employees.
That. Sucks. So how do I find a reputable company?
Good question. Employers trust payroll companies to manage huge sums of money and, as this case shows, problems can have cascading effects. If the money doesn’t make it into an employee’s account or shows up late, said employee may face overdraft/late fees. From there, the frustration and time to fix the problems only build. What’s worse: even if they’ve hired a payroll company, employers can still be held responsible for payroll issues. So yeah, you could say it’s pretty important to get it right. It’s worth doing your due diligence to make sure you’re dealing with a legitimate company.
Here are some factors to consider:
Longevity: A company that’s been around for 30 years without scandal is a good sign. Chances are they’re not running a long game of doing the hard work to build a solid reputation and systems that work just to defraud people later.
Security measures: Payroll companies have HUGE amounts of personally identifiable information (PII) running through their systems on a daily basis. With that level of info, they must have rock solid security measures in place. Make sure your company:
- Encrypts everything at multiple levels
- Treats all sensitive information as Personally Identifiable Information (PII) and in accordance with HIPAA recommendations
- Doesn’t allow any sensitive data to go offshore
- Has regular third-party security checks and an annual penetration test
- Has a redundancy system that backs up and saves data if something goes wrong
Insurance/guarantees: Even once you’ve done the work of ensuring the above, you still want to find out exactly who is on the hook if a mistake does happen. If a payroll company doesn’t submit payroll taxes on time, for example, the company could be held responsible. You need some assurance that if the payroll company messes something up, it will also clean it up.
Ask questions: Corrupt behaviors tend to start with warning signs. If you think something may be awry, start asking questions or hire someone to look into it.
Bottom line
Most of this kind of fraud, while incredibly frustrating and costly, is highly preventable. As usual, the best approach for protecting yourself is preventing problems in the first place. Any cost or perceived hassle of doing your research and hiring a reputable company (👋 ) in the first place pales in comparison to the potential cost of lax research.
About PayReel:
At PayReel, we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure everyone gets paid quickly and easily and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes video production, live events, media, and entertainment payroll easier, faster, and seamless.
